Does having a student loan affect ability to buy a home?

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By Liz Weston

Dear Liz: I recently completed a master’s degree in counseling and am now paying student loans. I am punctual and consistent in my payments. How does having a $30,000 outstanding student loan look to home lenders? We recently sold our home and moved. We are planning to buy another home and have a large down payment. Does this student loan affect my home purchase potential? My husband and I are retired, and we pay our bills on time.

Answer: Student loans can have a positive effect on your credit scores if they’re paid on time. On the other hand, your payments are factored into the equation of how much mortgage you can afford and will reduce the amount you can borrow.

You should be rethinking the notion of borrowing more in any case. It’s not clear why you spent so much on a degree if you’re not using it. Perhaps a health setback made working impossible or an inheritance made it unnecessary. Generally, though, you should borrow for an education only if you expect it to increase your earning power enough to easily replay the loan. If you’re pursuing an education just for the pleasure of it or for a feeling of accomplishment, you should pay for it out of pocket or with savings.

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